Its the ride of your life

In case you've been wondering whether your super will ever recover from the global financial crisis, relax. It just did.

Well, on average anyway, so maybe not yours. Being retired and taking money out would require a financial miracle to recover, though there are a few things you can do to help.

Super funds with 60 per cent or more of their investments in shares and other so-called growth assets have clawed back everything they lost in the GFC.

Yet the sharemarket isn't within cooee of its pre-GFC peak, a reminder that super isn't only about shares.

It's about being taxed at 15 per cent instead of your marginal rate and, once 60, not taxed at all when you take your money out.

Any decent super fund is diversified and, yes, includes things such as term deposits.

"It's not super that performs badly, it's the underlying asset. Investing in the same things outside super would put you in a worse position because you'd pay more tax and have lower capital," says Philip La Greca, technical services director at Multiport, which advises DIY super funds.

"Super is the only place where you get a tax break for putting in capital," he adds.

BACK ON THE HORSE

So what can you do to keep your super growing?

Funnily enough, it's less about pouring more money in - which won't do that much if you go about it the wrong way - and a lot more about avoiding mistakes. Top of the not-to-do list is constantly switching within, or for that matter between, funds - especially quitting an asset which is on the ropes. That's like selling something at the lowest price you can get.

Had you done that in 2009, when the average super return dropped 12.9 per cent, consultants Chant West say, and moved from 70 per cent shares to, say, 30 per cent, you still wouldn't have made up the loss.

"If you'd switched to cash in early 2009 then you would have missed the rebound. You'd still be lagging. It's very difficult to time the market," Chant West's research manager, Mano Mohankumar, says.

What you put where in super should change over time, becoming more conservative as you get older, but that's quite different from flitting from one portfolio to another every year.

Some funds will even do the adjusting automatically as you age - check if yours has what will probably be called a life-cycle option.

But, as a rough rule, until you're about 40 your super should be in a high-growth, more risky option. There's plenty of time to recover from the inevitable next sharemarket crash and ride the good years.

As you get older, tone it down to a more balanced, less risky option. (Stick this on the fridge as a reminder, if you like.)

LOW RISK IS LOW RETURN

Another mistake is being too conservative in retirement and not taking into account that life expectancy is getting longer.

Advisers say you should have two years' income in the bank, and the rest of your super invested in growing assets such as shares and property.

In an era of single-digit returns, which happens to be the norm, it's also critical that your fund has low fees. This will be easier after next July when MySuper starts, but don't wait until then.

Industry funds are normally cheaper than retail ones, though check out BT's low-fee Super for Life or ING Direct's no-fee Living Super, which is half cash and half sharemarket index funds.

And don't keep funds left over from previous jobs going. Consolidate them to save on multiple fees. The fund you want to keep will have a form for this.

Choosing the right portfolio is even more crucial to your super than picking the fund. Still, there's no denying the more you put in, the faster your super will grow.

And yes, there will be years it doesn't grow but they'll be more than made up for by those in which it does.

Salary sacrificing is the best way into super. Not only do you pay a flat 15 per cent (unless you earn more than $300,000, in which case bad luck), it can even reduce tax on your other income as well if you're on the border between different marginal rates. A super-charged, so to speak, variation of salary sacrificing occurs when you turn 55.

Then you can also start a pension from your super and, silly as it sounds, pay it back in.

That way the earnings in your super become tax-free. Don't ask.

Although the pension, fleeting as it is, is taxed, it comes with a 15 per cent rebate.

Once you've reached 60, the pension isn't even taxed.

OPTIONS FOR LOW EARNERS

Alas, salary sacrificing won't do all that much on a salary between $18,201 and $37,000, which puts you in the 19 per cent bracket. Less than $18,201, it won't do anything since you're not paying tax to begin with.

By the way, the 15 per cent rebate in the last budget for taxpayers in the 19 per cent bracket only applies to the employer contribution, not extra salary sacrificing you might make.

Then again, wait long enough and what's in your super eventually becomes tax-free.

Luckily, there's an even better option for some. Less than $31,920, the co-contribution is the go. Put $1000 into super (not by salary sacrificing - sorry, this has to be after-tax income) and the government will add its own $1000 gratis. The main condition is that you have at least a part-time job.

The co-contribution, as the government calls it, extends right up to an income of $61,920, but it falls by 3.33? - no, I'm not kidding - for every extra dollar you earn.

So on a $50,000 salary, a $1000 contribution would get a $397 co-contribution - about the same gain as salary sacrificing $2600.

Yes, you can salary sacrifice and make a voluntary contribution at the same time as well. But remember, the salary sacrifice is considered income so, before you ask, it's not a way of getting around the limit.